Selective says no reinsurance response to elevated Q2 storm losses

One of the trends coming out of the second-quarter is the elevated level of convective storm and severe weather losses affecting insurers across the United States, but at new and higher attachment levels very little reinsurance support is being seen, so far.

Higher attachment points installed during the current hard market negotiations have made occurrence reinsurance even more unlikely to attach to severe convective storm and similar losses.

At the same time, there is far less aggregate reinsurance cover now in place and where it is in place it tends to come with more stringent rules over how catastrophe losses qualify.

All of which means that, despite the second-quarter of 2023 seeing a significant catastrophe loss burden for insurers in the US, largely from convective storms, the majority of that loss is set to be retained in the primary market, with reinsurers and ILS funds largely avoiding any significant impact.

We’ve already seen relatively large catastrophe loss disclosures from re/insurer QBE, that raised its catastrophe budget, insurer Travelers whose Q2 cat losses weighed on its results, insurer Allstate which revealed a heavy Q2 cat loss burden as well, and The Hanover whose catastrophe losses pressured its results.

Selective Insurance Group has pre-announced its catastrophe losses from Q2 2023, saying they would add 10.6 points to its combined ratio, which it expects will be above 100%.

Selective said that it expects pre-tax net catastrophe losses totaling approximately $100 million for Q2.

These will be split across its underwriting units, with $63 million of pre-tax net catastrophe losses in Standard Commercial Lines, $21 million in Standard Personal Lines, and $16 million in Excess and Surplus Lines.

In total nineteen designated catastrophe loss events are cited, a similar number to some of the others that have already disclosed.

Selective said the majority of the storms affected its Midwest and East Coast footprint states.

But, despite this reasonable burden, Selective explained, “None were large enough to attach to our catastrophe reinsurance treaty.”

Reinsurance coverage has shifted to protect insurers against the larger and more impactful storm events now, while frequency coverage in aggregate form is less available, more expensive and typically much higher up their reinsurance towers.

Selective said that due to the elevated catastrophe loss burden in Q2, the insurer has increased its expectations for 2023 net catastrophe losses, from 4.5 points to now a 6 point combined ratio contribution for the full-year.

“In a challenging operating environment with elevated catastrophe losses throughout the insurance sector, our team worked hard to serve our customers and distribution partners. Through the first half of the year, our expected operating ROE of 12.2% was in line with our 12% target and we are on track to meet our full-year guidance of a 96.5% combined ratio and $300 million of after-tax net investment income. In addition, we produced excellent net premiums written growth,” commented Chairman, President and Chief Executive Officer John J. Marchioni.

As we reported earlier this year, Selective Insurance Group renewed its catastrophe reinsurance tower at 1/1 2023, and this year secured $216 million of fully collateralized limit, the majority of which sits in the top-layer of the program.